Weekly Economic Summary

Stocks enjoyed their seventh straight week of gains, due to the positiveeconomic reports that have been streaming in. While this is certainly cause for celebration, an important question we need to consider is: what does this mean for home loan rates in the short and long term?

On the one hand, improvement in the economy is good news on the housing front, as once people feel better about keeping their job or getting a new job, home purchasing activity will rise, and values will follow. But on the other side of the coin, as the labor market and economy improve, home loan rates will have to gradually rise as well. And remember, this all ties in with the Fed’s plan to inject the full $600 billion into our economy as part of their latest round of Quantitative Easing (QE2).

The three-part goal of QE2 is to create inflation, lower unemployment and boost stock prices – and we are seeing evidence of these goals occurring. Not only have stock prices improved over the last seven weeks as we discussed above, but December’s jobs report posted the lowest unemployment rate since May 2009. And last week, we saw some evidence of inflation as the Producer Price Index (PPI), which measures inflation at the wholesale or producer level, came in higher than expected. While December’s Consumer Price Index wasn’t quite as hot as the PPI, going forward our increasing budget deficit could cause inflation to spike down the road.